What Type of Company for Property Development (small scale)
Discussion
I'm not (yet) a powerfully built type so am hoping there is someone on here who can share their thoughts / experiences on the below.
Myself and my father have recently acquired a property in need of non-structural refurbishment - our aim is to do the property up to a reasonable standard and sell on, all being well for profit.
This is something we have wanted to do for a while but have only now been able to do as my father has recently taken early retirement so will be able to keep an eye on the progress of the works. All being well with the first one, this is something we would like to carry on doing, hopefully with 2-3 properties per year. The aim is to gradually build up the amount of equity we have in each house to a point where we have enough to have a house say with 50% equity that we can rent out, and continue doing up other properties at the same time.
We have both put in circa £30k for the deposit on the first property, and my father is putting up the money for the refurbishment costs which we have budgeted £30k for including contingencies, fees etc.
My question is, from a tax and being able to take money out perspective, what is the best way for us to do this from a company point of view? The first house we have put in mine, my wife's and both of my parents name to make benefit of the £44k combined capital gains allowance, but if we continue doing it as a personal venture as often as we want, we will pay tax at the normal 40% rate, so setting up a company seems logical, but no idea how best to do it.
We've discussed this at length, and we would like to be able to take out the initial £30k within a couple of years, and my father is not interested in getting any more financial benefit than me because he is putting up the £30k refurb costs.
In case it makes a difference, I will continue with my day job and this will purely be a sideline.
Anybody care to offer any thoughts?
Myself and my father have recently acquired a property in need of non-structural refurbishment - our aim is to do the property up to a reasonable standard and sell on, all being well for profit.
This is something we have wanted to do for a while but have only now been able to do as my father has recently taken early retirement so will be able to keep an eye on the progress of the works. All being well with the first one, this is something we would like to carry on doing, hopefully with 2-3 properties per year. The aim is to gradually build up the amount of equity we have in each house to a point where we have enough to have a house say with 50% equity that we can rent out, and continue doing up other properties at the same time.
We have both put in circa £30k for the deposit on the first property, and my father is putting up the money for the refurbishment costs which we have budgeted £30k for including contingencies, fees etc.
My question is, from a tax and being able to take money out perspective, what is the best way for us to do this from a company point of view? The first house we have put in mine, my wife's and both of my parents name to make benefit of the £44k combined capital gains allowance, but if we continue doing it as a personal venture as often as we want, we will pay tax at the normal 40% rate, so setting up a company seems logical, but no idea how best to do it.
We've discussed this at length, and we would like to be able to take out the initial £30k within a couple of years, and my father is not interested in getting any more financial benefit than me because he is putting up the £30k refurb costs.
In case it makes a difference, I will continue with my day job and this will purely be a sideline.
Anybody care to offer any thoughts?
My understanding was that by setting up as a company we would be liable for business rate tax at circa 20% instead of the 40% we would be taxed at if we did it as a personal thing.
Possibly that would need to be by doing it as a ltd company and paying ourselves dividends.
Does anyone know how it would work with the money we are putting in to begin with and taking that out?
Possibly that would need to be by doing it as a ltd company and paying ourselves dividends.
Does anyone know how it would work with the money we are putting in to begin with and taking that out?
If you are setting up a business to develop property, whether as a sole trader, partnership or as a limited company, Capital Gains will have no bearing on the tax payable. A property developer by definition is running a business - and therefore pays Income Tax if a sole trader or partnership on the business profits. If a limited company it pays Corporation Tax on its business profits.
I have a number of clients who run property development limited companies.
The advantage of a limited company is that a company pays Corporation Tax at 20% on its profits whereas an individual will pay Income Tax at 20%/40% or even 45% depending on the size of the profits and their other personal income. In addition to this, the individual will also be paying Class 4 National Insurance on their profit from the business.
Of course, even though the company pays 20% Corporation Tax on its profits, the individuals who own (shareholders) and run (the directors) the company WILL be subject to income tax on any money they withdraw from the company for personal use (salary, dividends, benefits in kind etc). However, the company format does give the directors/shareholders a large degree of flexibility in how they mix and match their personal income from the company which allows them to manage their overall personal tax better.
I have a number of clients who run property development limited companies.
The advantage of a limited company is that a company pays Corporation Tax at 20% on its profits whereas an individual will pay Income Tax at 20%/40% or even 45% depending on the size of the profits and their other personal income. In addition to this, the individual will also be paying Class 4 National Insurance on their profit from the business.
Of course, even though the company pays 20% Corporation Tax on its profits, the individuals who own (shareholders) and run (the directors) the company WILL be subject to income tax on any money they withdraw from the company for personal use (salary, dividends, benefits in kind etc). However, the company format does give the directors/shareholders a large degree of flexibility in how they mix and match their personal income from the company which allows them to manage their overall personal tax better.
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